French General Tax Code
In forceI. - Taxpayers domiciled for tax purposes in France within the meaning of Article 4 B may benefit from a reduction in their income tax equal to 25% of the amount of interest on loans taken out to acquire, as part of a takeover transaction, a fraction of the capital of a company whose securities are not admitted to trading on a French or foreign regulated market.
This tax reduction applies when the following conditions are met:
a) The purchaser undertakes to retain the shares in the company taken over until 31 December of the fifth year following the year of acquisition;
b) The shares acquired as part of the takeover referred to in the first paragraph give the purchaser at least 25% of the voting rights and rights in the corporate profits of the company taken over. For the assessment of this percentage, account is also taken of the rights held in the company by the following persons participating in the takeover transaction:
1° The acquirer's spouse or partner linked by a civil solidarity pact, as well as their ascendants and descendants;
2° Or, where the acquirer is an employee, the other employees of that same company;
c) As from the acquisition, the acquirer or one of the other partners mentioned in b actually performs in the company taken over one of the functions listed in 1° of 1 of III of Article 975 and under the conditions set out therein;
d) The acquired company has its registered office in a Member State of the European Union or in another State party to the Agreement on the European Economic Area that has entered into an administrative assistance agreement with France to combat tax evasion and avoidance, and is subject to corporation tax under the conditions of ordinary law or would be subject to corporation tax under the same conditions if the business were carried on in France;
e) The company taken over must be a small and medium-sized enterprise within the meaning of Annex I to Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty;
f) The company taken over carries out a commercial, industrial, craft, liberal or agricultural activity, with the exception of the management of its own movable or immovable assets.
The condition mentioned in e is assessed on the date on which the 25% threshold provided for in b is crossed.
II. - The interest giving entitlement to the tax reduction provided for in I is that paid in respect of loans taken out from the publication of the loi n° 2003-721 du 1er août 2003 pour l'initiative économique. The annual limit is €20,000 for single, widowed or divorced taxpayers and €40,000 for married taxpayers subject to joint taxation.
III. - The tax reduction mentioned in I may not relate to securities included in a share savings plan defined in article 163 quinquies D or in an employee savings plan provided for in title III of Book III of Part Three of the Labour Code, nor the fraction of payments made in respect of subscriptions that have given entitlement to the tax reduction provided for in I to IV of Article 199 terdecies-0 A.
Interest entitling to the tax reduction referred to in I may not give entitlement to the deductions provided for, in respect of actual and justified expenses, in 3° of article 83.
IV. - The provisions of 5 of I of article 197 are applicable to the tax reductions provided for in this article.
V. - The tax reductions obtained are subject to a reversal:
1° In respect of the year during which the breach of the commitment referred to in a of I or the repayment of the contributions occurs, where the latter occurs before the end of the period referred to in the same a;
2° In respect of the year during which one of the conditions referred to in b, c, d and f of I ceases to be met, where non-compliance with the condition occurs before the end of the period referred to in a of I.
Subject to the conditions mentioned in d and f of I, these provisions do not apply in the event of disability corresponding to classification in the second or third of the categories provided for in article L. 341-4 of the Social Security Code or the death of the purchaser. The same applies in the event of non-compliance with the condition set out in a of I following cancellation of the securities due to losses or compulsory liquidation, or following a merger or demerger and if the securities received as consideration for these transactions are retained by the acquirer until the end of the period referred to in a of I.
VI. - If the securities are sold, the contributions are repaid or one of the conditions mentioned in b, c, d or f of I is not met after 31 December of the fifth year following the year of acquisition, the tax reduction is no longer applicable from 1 January of the year in question.
VII. - A decree sets out the reporting obligations for taxpayers and companies.
VIII. - These provisions apply to loans contracted until 31 December 2011.
